GDL Equity & Trusts: The Ultimate Guide

GDL Equity & Trusts: The Ultimate Guide

Welcome to your comprehensive guide to mastering Equity & Trusts on the GDL/PGDL. This guide is designed to demystify one of the most notoriously challenging subjects for law conversion students. We'll break down the core concepts, from the three certainties to complex constructive trusts, and provide practical exam strategies to help you excel.

Why is Equity & Trusts so hard for GDL Students?

Many GDL students find Equity & Trusts a significant hurdle. You're not alone! The difficulty often stems from a few key factors:

• Abstract Concepts: Unlike the more concrete rules of contract or tort law, Equity & Trusts deals with abstract principles of fairness and conscience. Grasping the nature of equitable interests and obligations can be a steep learning curve.
• Historical Development: The subject is deeply rooted in history, with a unique vocabulary and a dual system of common law and equity. Understanding this historical context is crucial but can be time-consuming on a compressed GDL timeline.
• Overlap with Other Subjects: Equity & Trusts has significant overlaps with Land Law and Contract Law, which can create confusion. Distinguishing between the different legal principles and their applications is a key skill to develop.
• Compressed Timeline: The GDL/PGDL is an intensive course, and the sheer volume of material in Equity & Trusts can be overwhelming. You need to quickly get to grips with complex legal ideas and apply them to problem scenarios.

This guide is specifically designed to help you, as a GDL/PGDL student, navigate these challenges. We will break down the key principles in a clear and structured way, focusing on the essential information you need for your exams. We will also provide practical tips and strategies to help you develop your legal thinking and problem-solving skills. Let's dive in!

The Nature of Equity and the Trust

At its heart, equity is a system of law developed to mitigate the harshness of the common law. It is based on principles of fairness, justice, and conscience. The trust is one of equity’s most important creations.

A trust is an equitable obligation, binding a person (a trustee) to deal with property (trust property) for the benefit of other persons (beneficiaries), any one of whom may enforce the obligation.

This separation of legal and beneficial ownership is the cornerstone of trust law. The trustee holds the legal title to the property, while the beneficiaries hold the equitable title, giving them the right to enjoy the property.

Express Trusts: The Three Certainties

For an express trust to be valid, the settlor must demonstrate a clear intention to create a trust, and the trust property and beneficiaries must be certain. This requirement is known as the “three certainties,” as established in the landmark case of Knight v Knight [1840].

1. Certainty of Intention

The settlor must have intended to create a trust, rather than a gift or a loan. The court will look at the settlor’s words and conduct to ascertain their intention. Precatory words such as “hope,” “wish,” or “desire” are generally not sufficient to create a trust.

Case Example: Lambe v Eames (1871)

A testator gave his estate to his widow “to be at her disposal in any way she may think best, for the benefit of herself and her family.” The court held that this did not create a trust, as the words were not sufficiently certain.

2. Certainty of Subject Matter

The trust property must be clearly identifiable. If the subject matter is uncertain, the trust will fail. This includes both the property itself and the beneficial interests of the beneficiaries.

Case Example: Palmer v Simmonds (1854)

A testatrix left “the bulk of my residuary estate” on trust. The court held that this was too uncertain, as “bulk” is a subjective term. The trust failed.

3. Certainty of Objects

The beneficiaries of the trust must be certain. For a fixed trust, the trustee must be able to identify all the beneficiaries (the “list certainty” test). For a discretionary trust, the trustee must be able to say with certainty whether any given individual is or is not a member of the class of beneficiaries (the “is or is not” test, from McPhail v Doulton [1971]).

Exam Tip: The three certainties are a popular topic for problem questions. Make sure you can apply the relevant tests to different factual scenarios. Using a tool like LexIQ's Essay Marker can help you practice your problem-solving skills and get feedback on your application of the law.

Constitution of Trusts

For a trust to be enforceable, it must be "constituted." This means that the legal title to the trust property must be vested in the trustee. The settlor must do everything in their power to transfer the property to the trustee. As the famous maxim goes, "equity will not assist a volunteer."

Case Example: Milroy v Lord (1862)

This case established the three ways in which a settlor can provide for a beneficiary:

1. Outright gift to the beneficiary.
2. Transfer of legal title to a trustee to hold on trust for the beneficiary.
3. The settlor declares themselves a trustee of the property for the beneficiary.

If the settlor fails to properly constitute the trust, it will be an "incompletely constituted trust" and the beneficiaries will not be able to enforce it. However, there are some exceptions to this rule, such as the rule in Strong v Bird and the doctrine of donatio mortis causa.

Resulting and Constructive Trusts

Unlike express trusts, resulting and constructive trusts are implied by law. They arise in situations where it would be unconscionable for the legal owner of the property to hold it for their own benefit.

Resulting Trusts

A resulting trust arises when property is transferred to someone who pays nothing for it, and then is implied to have held the property for the benefit of another person. There are two main types of resulting trusts:

• Automatic Resulting Trusts: These arise when a settlor transfers property to a trustee on an express trust, but the trust fails for some reason (e.g., uncertainty of objects). The property is held on a resulting trust for the settlor.
• Presumed Resulting Trusts: These arise when one person contributes to the purchase price of a property, but the legal title is held in the name of another. It is presumed that the person holding the legal title holds the property on a resulting trust for the contributor, in proportion to their contribution.

Constructive Trusts

A constructive trust is imposed by the court to remedy a fraud or prevent unjust enrichment. It arises by operation of law, regardless of the intentions of the parties. One of the most important areas where constructive trusts are used is in the context of the family home.

Common Intention Constructive Trusts:

In cases involving cohabiting couples, the court may find that a common intention constructive trust has arisen. The leading cases are Lloyds Bank v Rosset [1991] and Stack v Dowden [2007].

• In Lloyds Bank v Rosset, Lord Bridge stated that a common intention could be found either through an express agreement between the parties, or inferred from their conduct, such as direct contributions to the purchase price.
• In Stack v Dowden, the House of Lords took a more holistic approach, looking at the parties' entire course of conduct to determine their common intention.

Exam Tip: Understanding the distinction between resulting and constructive trusts is crucial. A table can be a useful way to compare the two. You can create your own revision tables using LexIQ's Flashcards tool.

Proprietary Estoppel

Proprietary estoppel is another equitable doctrine that can be used to acquire an interest in property. It arises when a property owner makes a representation to another person that they have or will have an interest in the property, and that person relies on the representation to their detriment. It would be unconscionable for the property owner to go back on their word.

There are three key elements to establishing a claim for proprietary estoppel:

1. Assurance: The property owner must have made a clear and unequivocal assurance to the claimant.
2. Reliance: The claimant must have relied on the assurance.
3. Detriment: The claimant must have suffered a detriment as a result of their reliance.

Case Example: Thorner v Major [2009]

The claimant worked on the defendant’s farm for 30 years without pay, in the belief that he would inherit the farm. The defendant made oblique remarks over the years that encouraged this belief. The House of Lords held that the claimant was entitled to the farm under the doctrine of proprietary estoppel.

Exam Tip: Proprietary estoppel questions often involve complex family disputes. It's important to carefully analyze the facts and apply the three elements of the doctrine. LexIQ's Chat with Lexi can help you talk through complex scenarios and test your understanding of the law.

Breach of Trust and Trustee Duties

A trustee has a fiduciary duty to act in the best interests of the beneficiaries. If a trustee fails to comply with their duties, they may be in breach of trust. The main duties of a trustee include:

• Duty of care: A trustee must exercise reasonable care and skill in managing the trust property. The standard of care is that of an ordinary prudent businessperson.
• Duty to invest: Trustees have a duty to invest the trust property in a way that produces a return for the beneficiaries. The Trustee Act 2000 sets out the general power of investment.
• Duty to act impartially: A trustee must act impartially between the beneficiaries and not favor one over another.
• Duty not to profit from the trust: A trustee must not use their position to make a personal profit. This is a strict rule, and a trustee will be liable to account for any profit they make, even if they have acted honestly.

If a trustee breaches their trust, they may be personally liable to compensate the beneficiaries for any loss suffered. Beneficiaries can also seek other remedies, such as an injunction to prevent a breach of trust, or an order for the trustee to account for any profits made.

Exam Tip: When answering a problem question on breach of trust, it is important to identify the specific duty that has been breached and the appropriate remedy. LexIQ's Quiz Generator can help you test your knowledge of trustee duties and remedies.

Tracing and Remedies

When a trustee misapplies trust property, the beneficiaries will want to know what has happened to it and how they can get it back. This is where the doctrine of tracing comes in. Tracing is the process of identifying a new asset as the substitute for the old.

• Tracing at Common Law: The common law allows for tracing, but it is limited. The property must not have been mixed with other property.
• Tracing in Equity: Equity is more flexible and allows for tracing into a mixed fund. This is particularly important where the trustee has mixed trust money with their own money in a bank account.

Once the trust property has been traced, the beneficiaries can seek a remedy. The main remedies available are:

• Proprietary claim: The beneficiaries can claim a proprietary interest in the traced asset. This is a powerful remedy, as it gives the beneficiaries priority over the trustee’s general creditors if the trustee is bankrupt.
• Personal claim: The beneficiaries can bring a personal claim against the trustee for breach of trust. This is a claim for compensation for the loss suffered.

Exam Tip: Tracing questions can be complex, especially when they involve mixed funds. It is important to work through the problem step-by-step, applying the relevant tracing rules. Using a Study Planner from LexIQ can help you allocate sufficient time to master this tricky topic.

Practical Exam Tips for GDL Equity & Trusts

• Structure is Key: Use a clear and logical structure for your answers, such as the IRAC method (Issue, Rule, Application, Conclusion). For more on this, see our dedicated guide on the IRAC method.
• Know Your Cases: Equity & Trusts is a very case-heavy subject. Make sure you know the key cases and the principles they establish. Creating Flashcards with LexIQ can be a great way to memorize cases.
• Don't Panic! Problem questions can be long and complex. Take your time to read the question carefully and identify the key issues. Underline key facts and parties to help you stay focused.
• Practice, Practice, Practice: The more you practice, the more confident you will become. Use past papers and practice questions to test your knowledge and application of the law. LexIQ's SQE Prep tools can also be a valuable resource for practicing multiple-choice questions.

Common Mistakes to Avoid

• Confusing the three certainties: It's easy to get bogged down in the details, but make sure you have a clear understanding of the different requirements for each certainty.
• Forgetting to constitute the trust: An express trust is not valid until it is properly constituted. Don't forget to address this in your analysis.
• Misapplying the tracing rules: Tracing has its own complex set of rules. Make sure you know when to apply the common law and equitable tracing rules, and how to deal with mixed funds.
• Ignoring the facts: The facts of the problem question are crucial. Don't just state the law; apply it to the specific facts of the case.

By being aware of these common pitfalls, you can avoid making costly mistakes in your exams.

Conclusion

Equity & Trusts is a challenging but rewarding subject. By understanding the core concepts and developing a systematic approach to problem-solving, you can excel in your exams and build a strong foundation for your future legal career. Good luck!